Legislature(2003 - 2004)

04/29/2003 01:46 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 216                                                                                                            
     "An Act relating to municipal taxation of refined fuel                                                                     
REPRESENTATIVE  TOM ANDERSON,  SPONSOR, provided  information                                                                   
about  the bill.    He read  from  the sponsor  statement  as                                                                   
     House  Bill 216  clarifies  local taxing  authority  for                                                                   
     refined fuels  sold both within  and outside of  a local                                                                   
     CS  HB 216(CRA)  clarifies that  local governments  have                                                                   
     the  right  to  tax  any   fuel  consumed  within  their                                                                   
     governmental   boundaries,  but   do  not  have   taxing                                                                   
     authority  on  fuel  used  in  turbine-powered  aircraft                                                                   
     (except fuel that his transferred  into an aircraft at a                                                                   
     municipal  or private  airport)  or  wholesale sales  or                                                                   
     transfers of any refined petroleum product.                                                                                
     This type of taxation would also result in residents                                                                       
     from other parts of the State paying local governments                                                                     
     costs in municipalities where they do not reside.                                                                          
     The clarification contained  in HB 216 will also benefit                                                                   
     local governments.  There is some uncertainty now in                                                                       
     state law about the authority to tax fuel, and HB 216                                                                      
     will clarify the authority to tax locally consumed                                                                         
     Finally, one addition has been made to this bill.                                                                          
     Section 4 contains language designed to increase the                                                                       
     maximum amount of loans from the bulk fuel revolving                                                                       
     loan fund from the current $200,000 to $300,000.  This                                                                   
     change is necessary due to the rise in fuel prices                                                                         
     nationwide, especially in rural Alaska.                                                                                  
     And  here in  the  audience and  online  are members  of                                                                   
     industry   including  Jeff   Cook  of  Williams   Alaska                                                                   
     Petroleum who  can give some perspective  on the history                                                                   
     of this idea and the need for this legislation.                                                                            
Co-Chair Harris  clarified that the Committee  was discussing                                                                   
the Community and Regional Affairs version of the bill.                                                                         
JUSTIN CHARON,  YUKON FUEL,  testified via teleconference  in                                                                   
support of the  bill.  He stated that his company  would like                                                                   
to increase the  [AEA administered] Bulk Fuel  Revolving Loan                                                                   
Fund from  $200 to  $300 thousand  as a  result of  increases                                                                   
experienced  in  the  fuel  markets  over  the  past  several                                                                   
months.    He noted  that  volatility  in the  market  eroded                                                                   
buying  power of western  Alaskan consumers.  He pointed  out                                                                   
that  infrastructure was  available in  new villages  through                                                                   
the Denali Commission, which was  allowing them to buy enough                                                                   
fuel for the winter without flying  it in.  He explained that                                                                   
flying fuel could cost as much  as 100 percent more than fuel                                                                   
from barges, but stressed that  consumers sometimes could not                                                                   
afford to purchase barged fuel,  and had no choice but to pay                                                                   
the higher  prices of  flown fuel.   He recommended  that the                                                                   
loan program could alleviate this problem.                                                                                      
TIM  BECK,   FAIRBANKS,  testified   via  teleconference   in                                                                   
opposition  to the  bill.   He  maintained  that  this was  a                                                                   
special interest  tax, and stated that  it was a result  of a                                                                   
similar initiative in the North  Star Borough pertaining to a                                                                   
fuel transfer  tax  on certain  refined fuel  products.    He                                                                   
claimed that  a fuel transfer  tax he had sponsored  had been                                                                   
removed  from  the  agenda  due  to  its  similarity  to  the                                                                   
initiative, thereby curtailing  public discussion on the tax.                                                                   
He referred  to a  February 3,  03 letter  from Jeff  Cook at                                                                   
William  Alaska  validating the  alleged  misinformation  put                                                                   
forth  by  the   initiative  sponsors.    He   noted  that  a                                                                   
resolution  was   to  have  been  forwarded   to  the  Alaska                                                                   
Municipal  League for discussion.     He maintained  that the                                                                   
legislation constituted an "end  run" around the process that                                                                   
includes the states, boroughs,  cities and municipalities and                                                                   
directly  removes  a  local revenue  generator  from  already                                                                   
limited  taxing   authorities.     He  read  from   the  2003                                                                   
municipalities'  handbook,  under  Revenue and  Finance,  and                                                                   
emphasized  that  the  League  would  oppose  limitations  to                                                                   
taxing authority.  He noted that  several communities already                                                                   
had  fuel transfer  taxes  on the  books.   He  asked for  an                                                                   
opportunity for  the Alaska Municipal League  to address this                                                                   
issue at their fall meeting as originally intended.                                                                             
MERRICK  PIERCE, FAIRBANKS  testified  via teleconference  in                                                                   
opposition to the  bill.  He maintained that  the legislation                                                                   
supported special interest groups  and subordinated community                                                                   
interests.    He  suggested that  the  Williams  Company  had                                                                   
approached the North  Pole City Council to pass  a resolution                                                                   
asking  the  legislature  to  change  state  law  and  exempt                                                                   
Williams Alaska from  taxation of jet fuel.   This resolution                                                                   
was rejected by the Council, who  then sent the resolution to                                                                   
the AML for study.  He claimed  that the Corporation had then                                                                   
approached  the legislature  directly, which  resulted  in HB
216.   He  offered  an example  of how  wealthy  corporations                                                                   
"played by  different rules"  and manipulate the  legislative                                                                   
system:   when the borough  tax assessors in  Fairbanks asses                                                                   
property  value  they  are required  to  assess  fair  market                                                                   
value,  resulting in  property tax  rates, but  they are  not                                                                   
allowed  to assess  the  pipeline  system lands  since  local                                                                   
officials had that authority taken  from them, resulting in a                                                                   
dramatic  drop  in  the  pipeline  property  valuation.    He                                                                   
maintained that  other residents of  the borough pay  more in                                                                   
property  taxes due  to that  under valuation.   He  stressed                                                                   
that  a rule  in  business was  not  to give  away  something                                                                   
valuable for free, and questioned  the return for Alaskans on                                                                   
this legislation.   He  maintained that  nothing was  gained,                                                                   
but  diversification of  the local  tax base,  needed in  the                                                                   
community to  offset the high cost  of living, was lost.   He                                                                   
noted that the  rate of delinquency of property  taxes in the                                                                   
borough  had exceeded  10 percent, indicating  the heavy  tax                                                                   
burden.   He  stated that  the Fairbanks  North Star  Borough                                                                   
Assembly had not  given its position on the  legislation, and                                                                   
the  North   Pole  City   Council  had   voted  against   the                                                                   
resolution, but asked the AML to consider the issue.                                                                            
Co-Chair Harris asked  if the Alaska Municipal  League or the                                                                   
communities   of  Anchorage   and   Fairbanks  had   provided                                                                   
information.    Representative  Anderson responded  that  the                                                                   
Executive  Director  of  the   Alaska  Municipal  League  had                                                                   
initially  expressed concern  about whether  language in  the                                                                   
bill  prevented taxes  on other  refined  fuel and  petroleum                                                                   
products, which he stated might  generate a future amendment.                                                                   
He  added that  the Municipal  League was  supportive of  the                                                                   
amended legislation.   In response to a question  by Co-Chair                                                                   
Harris, he noted  that Tim Rogers from the  City of Anchorage                                                                   
presented the same initial concerns,  which were also allayed                                                                   
by the amendment.   He stated that the city  of Fairbanks had                                                                   
not  been  present  at  that meeting,  but  stated  that  the                                                                   
Fairbanks Chamber of Commerce endorsed the legislation.                                                                         
Mr. Pierce stressed,  via teleconference, that  the issue was                                                                   
never brought before the Fairbanks Assembly.                                                                                    
PAUL  BARRETT,  FAIRBANKS  testified  via  teleconference  in                                                                   
opposition to  the legislation.   He concurred that  the bill                                                                   
represented  special  interests,  and maintained  that  while                                                                   
Fairbanks should  be enjoying the  lowest fuel prices  in the                                                                   
country, in  fact the  pricing was  among the highest,  since                                                                   
the  Alaska   market  was  smaller  and   instate  refineries                                                                   
experience  extreme economic  advantage.   He submitted  that                                                                   
the purpose  of the legislation  was to preserve  an economic                                                                   
advantage  by maintaining  a price advantage.   He  suggested                                                                   
that the  legislature  should not act  according to  business                                                                   
needs.   He  noted that  Williams Alaska  was concerned  with                                                                   
facilitating a sale of their refinery.                                                                                          
TAPE HFC 03 - 70, Side A                                                                                                      
Mr. Barret continued  his testimony.  He maintained  that the                                                                   
Supreme   Court   had   upheld   tax   plans   innovated   by                                                                   
municipalities.   He  suggested that  before the  legislature                                                                   
acted  preemptively in  this  area that  they  await the  AML                                                                   
analysis scheduled  for the fall.   He concluded  that should                                                                   
the legislature choose to act  preemptively, the state impose                                                                   
a statewide  excise tax  on instate  refiners. He  maintained                                                                   
that as long  as the tax was restricted to  instate refiners,                                                                   
the cost  would not be passed  on to Alaskans, and  that this                                                                   
would mitigate the extreme prices  currently paid by Alaskans                                                                   
for petroleum products.                                                                                                         
JEFF   COOK  WILLIAMS,   VICE   PRESIDENT,  WILLIAMS   ALASKA                                                                   
PETROLIUM testified  in support of the bill.   He stated that                                                                   
Williams  operates  Alaska's  largest  refinery,  located  at                                                                   
North Pole near  Fairbanks.  They also own  product terminals                                                                   
in Fairbanks and Anchorage, 29  convenience stores located in                                                                   
seven Alaskan  communities, and  a three percent  interest in                                                                   
the Trans  Alaskan Pipeline, which  he pointed out  that they                                                                   
did not  acquire until after  the TAPS settlement  agreement.                                                                   
He noted  that since  the refinery  began 25  years ago,  the                                                                   
company has purchased  300 million barrels of  crude oil from                                                                   
the  state  of Alaska,  in  addition  to oil  purchased  from                                                                   
Mr. Cook stated that in June 25,  2002 a special election was                                                                   
held  in  the  Fairbanks/North   Star  Borough  to  determine                                                                   
whether  a  two-cent  per  gallon   transfer  tax  should  be                                                                   
enacted.  He stated that after  much public debate the voters                                                                   
denied the tax  by 62 to 32 percent.  He  maintained that the                                                                   
issue  was  that  the  tax  would   have  cost  Williams  and                                                                   
Petrostar in excess of $20 million  per year.  Williams would                                                                   
not  have passed  the  tax on  to  customers  since they  had                                                                   
alternative sources of supply.   He noted that they refine 70                                                                   
thousand barrels per day of product,  60 percent is jet fuel,                                                                   
of which over 90 percent is shipped  by railcar to Anchorage.                                                                   
He noted that  in addition they supply fuels  to rural Alaska                                                                   
by barge and other means to support  airports and diesel fuel                                                                   
needs.   He  emphasized  that  the air  cargo  industry is  a                                                                   
competitive market,  and that even a penny per  gallon made a                                                                   
big difference. They also export to Japan from Anchorage.                                                                       
Mr. Cook  explained that by the  time the product  leaves the                                                                   
refinery,   it   goes   through    eight   potential   taxing                                                                   
jurisdictions.  If  the transfer tax was added,  they product                                                                   
could  be priced  out  of competition.    He maintained  that                                                                   
their product was a value added  service for interior Alaska.                                                                   
He  also pointed  out  that the  promoters  of  the tax  were                                                                   
asking  producers to  pay for  the  municipal government  and                                                                   
suggested that this  was unfair.  He noted that  prior to the                                                                   
election,  the  North  Start Borough  hired  former  Attorney                                                                   
General Avrum  Gross to  analyze the effects  of such  a tax.                                                                   
He stated  that Mr.  Gross had  determined [letter  dated May                                                                   
29, 2002,  COPY ON FILE]  that the tax  would be a  source of                                                                   
confusion  and  an  unreliable   means  of  revenue  for  the                                                                   
Mr.  Williams  concluded  that  within the  boundaries  of  a                                                                   
municipality,  any  excise  taxes   were  fair,  but  to  tax                                                                   
exported   products  to   pay   for  local   government   was                                                                   
Representative  Foster commented  that in  1993 a village  in                                                                   
his  district began  taxing all  the  by-pass coming  through                                                                   
their airport.  He concluded that  if each municipality added                                                                   
excise   taxes,  the   eventual   cost   of  products   being                                                                   
transported  to  the  villages  would  be  prohibitive.    He                                                                   
stressed his support for the legislation.                                                                                       
Mr. Williams  added that some  members had expressed  concern                                                                   
for small plants  in the North Slope that transfer  diesel to                                                                   
run machinery and wanted to make  sure that this would not be                                                                   
taxable.  He stated that their company understood the                                                                           
concern, and it would be addressed in the bill at a later                                                                       
Co-Chair Harris clarified that Co-Chair Williams did not                                                                        
intend to move the bill at this time, indicating that a new                                                                     
Committee Substitute was forthcoming.                                                                                           
CSHB 216 (CRA) was heard AND HELD in Committee for further                                                                      

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